03.03.2020

Another strong quarter for Ashtead

UK/International rental group Ashtead has posted its nine month results to the end of January with total group revenues of £3.9 billion, up 13 percent on this time last year.

Rental revenue improved 12 percent to £3.57 billion, while pre-tax profits for the period were six percent higher at £885 million. Capital investment in the business was almost three percent lower at £1.26 billion, taking the average age of the fleet from 32 to 34 months. During the period the group spent £491 million on ‘bolt-on’ acquisitions.

Looking at the third quarter, total revenues were 11 percent up on the same quarter last year at £1.25 billion, with a pre-tax profit of £225 million, down one percent on last year. The business is made up of Sunbelt USA, Sunbelt Canada and A-Plant in the UK.

Sunbelt in the USA saw revenues for the nine months improve almost 14 percent to $4.28 billion, while operating profits were more than 11 percent higher at $1.34 billion. The company added 64 new branches in the period, half of which were specialty locations.

Sunbelt Canada reported nine month revenues of $320.8 million, an increase of 25 percent on the year, more than half of which was due to acquisitions. Operating profits improved more than 21 percent to $57.6 million.

In the UK A-Plant achieved revenues of £365.1 million, an increase of just over one percent on the same period last year while operating profits slumped 31 percent to £37.8 million. The business saw rental revenues fall one percent, following a one percent reduction in the fleet out on rent, while higher sales of used equipment plugged the revenue gap as part of a ‘defleeting’ programme aimed at improving utilisation.

Chief executive, Brendan Horgan said: "We have enjoyed another quarter of industry leading rental revenue growth, resulting in an increase in rental revenue of 12 percent in the nine months and an increase in underlying earnings per share of 11 percent, excluding the impact of IFRS 16, both at constant exchange rates.”

“Our North American end markets remain supportive and we continue to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions in a moderating growth environment. This strategy reflects the structural growth opportunity we see in the business as we broaden our product offering, geographic reach and end markets. In contrast, the UK market remains challenging and we are therefore refocusing A-Plant on leveraging its platform to deliver long-term sustainable results, while generating strong cash flow.”

“We invested £1.3 billion in capital and a further £407 million on bolt-on acquisitions in the period, which added 82 locations across the group. As discussed at the half year, we expect capital expenditure for the year to be at the lower end of our previous guidance of around £1.4 billion. Looking forward to 2020/21, we anticipate gross capital expenditure of £1.1 - £1.3 billion which should result in mid to high single digit revenue growth in the US.”

“We remain focused on responsible growth. Our increasing scale and strong margins are delivering growing earnings and significant free cash flow. This provides significant operational and financial flexibility, enabling us to invest in the long-term structural growth opportunity and enhance returns to shareholders.”

"In North America our business continues to perform well in supportive end markets, while in the UK we have taken decisive strategic action to refocus the business in the challenging market conditions. Although construction markets are moderating, we expect results to be in line with expectations and the Board continues to look to the medium term with confidence."

Vertikal Comment

Another strong set of numbers from Ashtead, although the UK continues to lag behind its North American operations. It seems that the group’s attitude to the UK market is a considerably less expansive and positive than in North America. It does of course have a larger market share in the UK and expansion can be both expensive and of marginal benefit in terms of returns. Having said that there is much that can be done within the business to exploit the strong geographic and product range coverage it has.

It will be interesting to see how new entrant Boels gets on which its ambitious plans in the UK and whether it will show Ashtead how it might be done? The UK business appointed a new senior manager this week - see: Andy Wright appointed A-Plant CEO - the question is, will he and his team be able to revitalise the business and undo the damage done by poor local management over the past couple of years?